The emergence of the so-called 'Rising Powers' - including but not limited to China, India, Brazil and Russia - represents one of the key drivers of global economic and social change. The Rising Powers and Interdependent Futures network funded by the Economic and Social Research Council includes 12 research projects at ten universities across the UK that explore these ongoing changes.

Wednesday, 8 October 2014

Small firms and Corporate Social Responsibility: comparing the social contract in Brazil, China and India

In a recent article published in the Journal of Business Ethics, Peter Knorringa and Khalid Nadvi compare the local institutional context for socially and environmentally sustainable behaviour in small firm clusters in Brazil, China and India. The paper points to a number of open questions around small firms and CSR in the Rising Powers.

Multinational companies have been adopting elaborate Corporate Social Responsibility (CSR) programmes at global level, but often face difficulties in implementing social and environmental standards throughout the supply chain - especially with many small suppliers located in emerging economies. To better understand how and when small firms are likely to improve their social and environmental performance, we propose to pay closer attention to the underlying social contract in these countries, including the formal and informal institutional context for CSR.

Important elements of such a social contract include both the national policy framework of labour and environmental regulation, as well as informal norms on ethical behaviour and traditions of compliance with formal rules that may exist in local industrial clusters. Hence, small firms that are located in industrial clusters in emerging economies and are supplying to multinationals not only face demands for compliance with global CSR standards from their international buyers, but they are also strongly influenced by the local context they operate in.

Nevertheless, we currently know very little about how these local and global forces interact. Do national labour laws and private social standards from MNCs complement each other in pushing for better working conditions in small firms? Are there informal ethical norms in local communities that small entrepreneurs belong to, which facilitate compliance with global CSR standards? Or, on the other hand, will small firms be less likely to comply with global social standards if they operate in a context where national labour laws are weakly enforced?

Comparing the social contracts in Brazil, China and India reveals differences in the local context for CSR, and in the ways in which these interact with global CSR standards:

In India, informal labour is common in small firms, which means that workers are not covered by formal labour laws. In addition, complex layers of subcontracting make it more difficult for international buyers to influence compliance with global CSR standards in suppliers. As a result, small firms in India face little pressure to improve social and environmental performance from the outside, and any willingness of entrepreneurs to engage in more social and environmentally sustainable production for ethical reasons is made more difficult by cut-throat competition in very price-sensitive markets.

In Brazil, on the contrary, there is relatively less informal employment. Labour laws in the formal sector are generally enforced, for example through a system of labour inspectors monitoring and facilitating compliance. Further, there is growing cooperation between the public and private sector around sustainability issues at national level which sets the scene for mutually reinforcing engagement including on global sustainability standards.

China is an intermediate case, where national labour and environmental laws have become stricter over the past decades, but the details of regulations and the effectiveness of enforcement differ across regions. Hence, the local institutional framework may be better positioned to accommodate global CSR demands than in India, but seems less conducive to effective enforcement of social and environmental standards than in Brazil.

Future research on CSR in emerging economy industrial clusters should explore in more detail the interactions between CSR pressures from global buyers and the localised social contract in which small firms operate. This requires paying attention to how public policies and informal norms at national and local level facilitate or hinder compliance with global social and environmental standards. In addition, it will be important to observe how the emergence of increasingly affluent middle classes in emerging economies such as China, India or Brazil influences the demand for social and environmentally sustainable goods in domestic markets. Potentially, such domestic sustainability standards in emerging economies may also begin to shape the formulation of global standards, as these countries increasingly engage in global governance fora.

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